Fairfax consortium bids $4.7 billion to make BlackBerry private

TORONTO - Reuters

Fairfax Financial Holdings has offered to buy BlackBerry in a deal that values the Canadian smartphone company at about US$4.7 billion. AP photo

Smartphone maker BlackBerry has agreed to go private in a $4.7 billion deal led by its biggest shareholder, allowing the on-the-go email pioneer to regroup away from public scrutiny after years of falling fortunes and slumping market share.

The $9 a share tentative offer, from a consortium led by property and casualty insurer Fairfax Financial Holdings Ltd , will set a floor for any counteroffers that might emerge for Blackberry, which has been on the block since August.

As an investor, Fairfax Chief Executive Prem Watsa is often described as the Canadian Warren Buffett because he also takes the long view.

Blackberry shares peaked above $148 in June 2008 when the company’s devices were still the top choice for bankers, politicians and lawyers.

The stock, halted pending the announcement on Monday, closed below the offer price on Nasdaq, at $8.82, indicating the market’s lack of faith that other bids would emerge.

“I would think a competing buyout offer is quite unlikely,” said Elvis Picardo, strategist at Global Securities in Vancouver. “The miniscule premium, and the muted market reaction, is another indication that the market views the odds of a competing bid as slim.”

BlackBerry, based in Waterloo, Ontario, once dominated the market for secure on-your-hip email. But it introduced consumer-friendly touchscreen smartphones only after it lost the lead to Apple Inc’s iPhone and devices using Google Inc’s Android operating system.

BlackBerry has until Nov 4 to seek superior offers, which the Fairfax group has the right to match. The group is seeking financing from Bank of America Merrill Lynch and BMO Capital Markets to complete the deal and has until that Nov 4 deadline to conduct its due diligence.

Strong Canadian solution

A BlackBerry statement did not name members of the consortium, although many in the financial community see Canada’s deep-pocketed and influential pension funds as likely participants.

“We need to be careful given disclosure constraints, but we can say that we are focused on a strong Canadian solution,” said Fairfax spokesman Paul Rivett.The pension funds, with assets around the world, traditionally take a long-term view in their investment decisions. Officials at the biggest funds either did not reply to requests for comment, said they had no information or declined to comment.

“We never discuss whether or not we plan to enter into any investment,” said Deborah Allan, spokeswoman for Ontario Teachers’ Pension Plan.

Watsa stepped down from the BlackBerry board of directors in August, citing a potential conflict of interest, as the company said it was exploring a sale.

Canada’s Globe and Mail newspaper quoted Watsa as saying that a significant amount of the equity in the deal will come from within the country. The consortium included neither strategic players, nor other technology firms, he said.

BlackBerry’s recent challenging years have been in stark contrast to the rapid growth it previously enjoyed.

The Z10 touchscreen device that the company hoped would claw back market share from the iPhone thudded badly at launch in January, and it has lost ground even in emerging markets where it had carved out an important role.

A spokeswoman for phone company MTN Nigeria, for example, said that while BlackBerrys are still very relevant in Nigeria, “the adoption rate has declined significantly from a year ago due to lack of newer low to mid-end smart phone models.” In Brazil, locally made iPhones are the first choice for government workers. “I have never seen aBrazilian government employee using a BlackBerry,” said one government source.

And while some U.S. government agencies still use only the BlackBerry, others allow devices like iPhones as well.

The American Lawyer surveyed 83 of the top 200 U.S. law firms in November 2012 and found that 90 percent of them expected to see a drop-off in the number of Blackberry devices.

John Sroko, chief information officer at Duane Morris, said that three years ago the firm only offered BlackBerrydevices because they were deemed most secure. But in recent years, the firm has allowed their lawyers to use other devices too.